Payroll taxes are the form of tax debt that the IRS is the most aggressive in collecting. When employer’s withhold income taxes, Social Security and Medicare withholding from their employee’s paychecks, they are entrusted to pay those funds to the IRS. Employers who fail to remit these funds, instead converting them to their own use to pay operational expenses of the business, are aggressively collected upon by the IRS.
The IRS assigns the most egregious collections cases to field collections representatives called Revenue Officers. Revenue Officers have the latitude to conduct a much more in-depth investigation of a taxpayer in order to secure repayment of the debt. Furthermore, Revenue Officers are much more likely to take enforced collection action against a taxpayer, such as a levy of their assets or sources of income. The dollar threshold for the assignment of a personal income tax liability to a Revenue Officer is $250,000. That same threshold for payroll taxes is only $25,000. This illustrates just how seriously the IRS takes the collection of payroll taxes.
In addition to the greater level of collection activity on payroll taxes, the IRS will often seek not only to collect from the business but also individually from its owners. The IRS will investigate the officers and employees of the business to determine which parties were responsible for the delinquency in the payroll taxes. If they determine that an officer or employer was responsible for paying the payroll taxes and willfully failed to do so, then they can assess a civil penalty against the responsible party equal to the amount of income taxes, Social Security and Medicare withholding withheld from the employee’s paychecks. The responsible party and the business would then become jointly and severally liable for the debt. The assessment of this Trust Fund Recovery Penalty, gives the IRS the ability to collect directly from the personal income and assets of the responsible party.
Through the IRS investigation to determine the party responsible for the business’ failure to remit the payroll taxes, they will review banking information to determine who had signature authority over the business bank account and who was signing the payroll checks. They will also seek to conduct an interview with any of the parties they seek to assess the Trust Fund Recovery Penalty to. Through that interview the IRS will attempt to get the party they suspect is responsible to admit that they were responsible for approving payroll, signing payroll checks, establishing the fiscal policy of the business and deciding which creditors and financial obligations of the business to pay in lieu of the payroll taxes. Revenue Officers generally do not inform subjects of their investigation of the voluntary nature of these interviews but they are not compulsory. If you have been asked by a Revenue Officer to be interviewed regarding the delinquent payroll taxes, please consult a tax practitioner as the admission of responsibility can make appealing the penalty difficult and may be used as evidence in a criminal investigation. The tax lawyers at J David Tax Law work with businesses in every State.
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